If there’s one thing Brexit has taught us, it’s that Britain’s small business owners are a savvy bunch of individuals. Despite the understandable concern about how uncertainty could affect business investment and opportunity, SMEs (small-to-medium enterprises) in the UK have remained admirably resilient. Of course, they will continue to face challenges along the way, but sensible planning and resourceful pragmatism have so far won out.
That said, though, in my experience, there’s one opportunity that most small businesses tend to forget about. One that leverages an asset they’ve worked hard for and that costs almost nothing to put to work: their cash.
Statistics from trade association UK Finance show that British businesses are, on average, keeping most of their cash in current or instant-access accounts. By doing so, they’re getting close to nothing in return as interest. That’s a lot of hard-earned money, sitting around in a bank account kicking its heels.
To put that into context, let’s say a business has £80,000 of excess cash that it doesn’t need for the day-to-day running of its business. At a high street bank they’d be fortunate to earn around 0.75% a year in interest, or just £600 – indeed, many are earning closer to 0.05%.* However, one look at the Moneyfacts best rates for business savings accounts shows that, by agreeing to keep that money tied up for a year, they’d be able to earn an annual rate of up to 1.61%. That translates to £1,288 in interest – or £688 more than they were getting.
Despite this, not enough small business owners see their cash as an asset that can be put to work. They’ll spend hours every week exploring ways to optimise their business with incremental gains and cutting unnecessary costs, but will often overlook something as simple as moving their surplus cash into a business savings account.
It pays to shop around
Business owners can be forgiven for thinking it’s simply too much effort for too little reward. And that’s if they even think about it at all. Worryingly, UK Finance figures show that the number of new business savings accounts being opened is actually shrinking. But why?
For one, many small business owners don’t realise some of the attractive rates that can be achieved. When you’re talking about the difference between 0.05% and 0.75%, it’s easy to ask yourself “is this really worth my time?” But there are providers out there offering rates well over double this – it’s just a matter of knowing where to look and shopping around.
This effect is compounded by the perception that setting up a new savings account is a hassle. Now, there’s no doubt that this can be the case. Some providers don’t accept online applications, and still ask for a wet signature sent through the post. It doesn’t have to be that way, though. Modern technology means it’s become possible to set up a business bank account entirely from your smartphone. Automation and real-time data feeds have sped up the approval process to a matter of hours, not weeks.
Another factor that stops people from switching is the age-old myth that it pays to be loyal to your bank. Some business owners will proudly say they’ve been with the same bank for over a decade. In reality, businesses see little benefit from staying with the same provider, many of whom take advantage of this very misconception. Now, there’s no need to leave your old provider completely, but it seems a shame not to look to earn a better rate on at least your company’s excess balance sheet cash.
That said, I think the prime reason small businesses are failing to make the most out of their cash is that it’s often the last thing on their mind. Entrepreneurs set up a business because they are passionate about what they do. They want to build, make, create or serve, not worry about numbers on a spreadsheet. And that’s absolutely the way it should be!
Putting your cash to work
If you ask me, 2020 should be the year that every British business decides to get their cash working best for them. Opening a new savings account has never been easier. And, as a more stable political environment looks likely to open up opportunities for small and medium-sized businesses, an extra £1,000 in interest could go a long way.
At Allica Bank, our team has decades of experience supporting businesses with just these kinds of problems. That’s why we’ve built our deposit account to empower small businesses to achieve more with their money.
When we release our business deposit accounts in the coming months, the focus will be on our three core values: being straightforward, acting with integrity and working with our customers in collaboration to help them achieve their goals. Not being held back by legacy systems or products, we’re able to leverage modern technology to create a customer experience that provides the speed, clarity and consistency that time-poor business owners need.
So, while it may be a little late for a New Year’s Resolution, why not see if you can get your company money working harder for you this year? It could be one of the easiest £1,000 you make.
Lawrence Holland is Head of Deposits at Allica Bank. He has over a decade of experience of working to help support the aspirations of SME businesses
*Correct as of January 2020